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Later Retirement



February 28, 2010 – Comments (2)

Financial Armageddon has a whole bunch of links to stories from countries around the world considering raising the retirement age as a way of dealing with an aging population and the inability to pay all those retirement benefits.

The story from Australia was interesting to me because they make a specific reference to needing 5 working people per retired person.  In order to maintain that ratio they estimate needing to raise the retirement age to 73 by 2049.

I saw this problem coming 20 years ago and I was as concerned about it then as I am now.  I wrote about the need for pension reform back then.  My suggestion back then was to make pensions have a flexible start, from age 65 to 75, with each year you delay giving you a bigger pension, but at the same time cutting the indexing to the existing pension system until age 70 gave you about what you get at age 65 now.   I thought the existing pension should have been de-indexed until it was devalued about 25% and if you worked until age 75 you'd get about 25% more.

Instead benefits and the ability to access them was increased.  They came out with an early retirement option of being able to retire at age 60 for a reduced rate.  I have a friend that just stopped working for the month required to qualify and then started collecting and went back to work.  It is so incredibly stupid what they did.  Early retirement should only be an option for people with serious health issues.

In Canada we have Old Age Security and Guaranteed Income Supplement for seniors that are not paid for the way we pay into Canada Pension Plan off our pay cheques.  They come out of general revenues and are not clawed back until you make something crazy just over $100k.  So, we have our lowest income workers making about $8/hour or $16k per year paying into this disgrace.  To be quite frank, and fair, no income supplement should exceed what we expect our minimum wage earners to live on.  Further, seniors get an extra tax break, free prescriptions, and the poor workers are paying Canada Pension rates far, far in excess of what existing seniors ever paid.  Compare the same low income before taxes and I bet the after taxes and deductions amount the young person gets to keep is about 10% less then the senior.

I remember when I started working the bank at age 17 cashing Canada Pension cheques and also seeing what they took off my cheque and I remember asking my bank manager how the pension could be paid for if that was all they took.  It was such a tiny amount, it was insane.  My bank manager talked to me about compounding interest and assured me that it would work out.  WRONG.  Of course, I was the naive 17-year-old, so what did I know?  These programs simply amount the transference of wealth from youth to old.  It is really crazy when you consider that oldest 20% of the population holds something between 60-80% of the wealth.  And it would not surprise me with the current generation's declining wages, increased education costs, housing costs and problems finding stable employment if that ratio is changing so youth holds even less of the wealth.

I just recently linked to this previous post showing the aging population in Canada and the US.

Australia wants a ratio of 5 workers per senior and we are already down to 4 workers per senior, heading to 2.5 by the time I reach retirement age.

It needs to be fixed.

2 Comments – Post Your Own

#1) On February 28, 2010 at 11:30 PM, Tastylunch (28.70) wrote:

And you see people delaying having children as well....

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#2) On March 01, 2010 at 5:53 PM, USNHR (29.71) wrote:

It needs to be fixed, however I don't see a government that thinks the people want more entitlements fixing anything.

In HR, my chosen field, we talk about how we will do recruiting in 2025 because the working population will be so small. If I'm looking at India, China, Australia, and elsewhere in order to hire labor for my jobs, It scares me to think where "developed" nations will be in 50 years. We will definately be reinventing ourselves.

Especially if we have a population that is 1/3rd or more that is living on government programs. 

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